Condensed Consolidated Interim Financial Statements of MAXIM POWER CORP. For the Third Quarter ended September 30, 2018.

Transcription

1 Condensed Consolidated Interim Financial Statements of MAXIM POWER CORP. For the Third Quarter ended September 30, 2018 (Unaudited)

2 NOTICE OF NO AUDITOR REVIEW OF INTERIM FINANCIAL STATEMENTS Under National Instrument , Part 4, subsection 4.3(3)(a), if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the interim financial statements have not been reviewed by an auditor. The Corporation s independent auditor has not performed a review of the accompanying unaudited condensed consolidated interim financial statements. The accompanying unaudited condensed consolidated interim financial statements of the Corporation have been prepared by and are the responsibility of the Corporation s management. These unaudited condensed consolidated interim financial statements have been prepared in accordance with International Financial Reporting Standards. (signed) "M. Bruce Chernoff" (signed) "Michael R. Mayder" M. Bruce Chernoff Michael R. Mayder Interim Chief Executive Officer MAXIM Power Corp. Senior VP Finance and Chief Financial Officer MAXIM Power Corp.

3 MAXIM POWER CORP. Unaudited Condensed Consolidated Interim Statements of Financial Position (in thousands of Canadian dollars) September 30, December 31, Note ASSETS Cash and cash equivalents 12,399 51,264 Short-term investment 5 51,221 50,138 Trade and other receivables 5,961 2,169 Prepaid expenses and deposits Total current assets 69, ,693 Property, plant and equipment, net 3,6 69,542 47,574 Intangible assets, net Restricted cash 7,871 7,908 Deferred tax assets 10 6,158 2,679 Other assets 3 6,732 6,959 Total non-current assets 90,544 65,797 TOTAL ASSETS 160, ,490 LIABILITIES Trade and other payables 4,480 6,393 Total current liabilities 4,480 6,393 Provisions for decommissioning 3 15,041 11,055 Deferred tax liabilities 10-3,368 Total non-current liabilities 15,041 14,423 TOTAL LIABILITIES 19,521 20,816 EQUITY Share capital 7 153, ,471 Contributed surplus 11,771 11,517 Deficit (24,100) (20,314) TOTAL EQUITY 140, ,674 Commitments and Contingencies 12,13 TOTAL LIABILITIES AND EQUITY 160, ,490 The accompanying notes are an integral part of these condensed consolidated interim financial statements. On behalf of the Board: M. Bruce Chernoff Wiley Auch Director Director

4 MAXIM POWER CORP. Unaudited Condensed Consolidated Interim Statements of Income (Loss) and Comprehensive Income (Loss) For the three months and nine months ended September 30 (in thousands of Canadian dollars) Three months ended September 30 Nine months ended September 30 Note Revenue 7,880-9,989 2,024 Expenses Operating 8,206 1,527 13,199 9,641 General and administrative 901 1,429 3,082 3,958 Depreciation and amortization 1, ,137 3,781 Gain on commodity swaps (975) Asset impairment charges ,344 Other expense (income), net (269) 1,259 (3,638) Operating loss (4,101) (3,627) (12,688) (19,087) Finance income, net 9 (358) (275) (1,361) (55) Loss before income taxes (3,743) (3,352) (11,327) (19,032) Income tax expense (benefit) Current (10) (71) (24) 81 Deferred (6,847) (842) (10) (71) (6,871) (761) Net loss from continuing operations (3,733) (3,281) (4,456) (18,271) Discontinued operation Net income (loss) from discontinued operation (net of tax) 4 - (2,156) - 49,205 Net income (loss) (3,733) (5,437) (4,456) 30,934 Other comprehensive income (loss), net of tax: Item that are or may be reclassified to net income: Reclassification to net income on disposal of discontinued foreign operation (26,729) Translation of discontinued foreign operation (1,443) Total comprehensive income (loss) (3,733) (5,437) (4,456) 2,762 Net income (loss) attributable to: Non-controlling interest Shareholders (3,733) (5,437) (4,456) 30,930 Net income (loss) attributable to shareholders per share: 11 Basic earnings (0.07) (0.10) (0.08) 0.57 Diluted earnings (0.07) (0.10) (0.08) 0.57 Net loss attributable to shareholders per share continuing operations: 11 Basic earnings (0.07) (0.06) (0.08) (0.34) Diluted earnings (0.07) (0.06) (0.08) (0.34) Comprehensive income (loss) attributable to: Non-controlling interest Shareholders (3,733) (5,437) (4,456) 2,760 The accompanying notes are an integral part of these condensed consolidated interim financial statements.

5 MAXIM POWER CORP. Unaudited Condensed Consolidated Interim Statements of Changes in Equity For the nine months ended September 30 (in thousands of Canadian dollars, except common share data) Common shares (thousands) Share capital Contributed surplus Accumulated other comprehensive gain (loss) Deficit Equity attributable to shareholders Noncontrolling interest Total Equity at December 31, , ,471 11,517 - (20,314) 148, ,674 Net loss (4,456) (4,456) - (4,456) Repurchase of common shares for cancellation (note 7) (1,477) (4,253) (3,583) - (3,583) Share-based compensation Equity at September 30, , ,218 11,771 - (24,100) 140, ,889 Equity at December 31, , ,482 11,423 28,172 (38,790) 157, ,481 Net income ,930 30, ,934 Stock options exercised (313) Share-based compensation Translation of foreign operation (1,443) - (1,443) (2) (1,445) Distributions to non-controlling interest (31) (31) Disposal of foreign operation (26,729) - (26,729) (165) (26,894) Equity at September 30, , ,447 11,458 - (7,860) 161, ,045 The accompanying notes are an integral part of these condensed consolidated interim financial statements.

6 MAXIM POWER CORP. Unaudited Condensed Consolidated Interim Statements of Cash Flows For the nine months ended September 30 (in thousands of Canadian dollars) Note Cash flows from operating activities: Net loss from continuing operations (4,456) (18,271) Adjustments for items not involving cash or operations: Depreciation and amortization 5,137 3,781 Asset impairment charges - 8,344 Share-based compensation Income tax benefit 10 (6,871) (761) Income taxes refunded (paid) 24 (80) Finance income, net 9 (1,361) (55) Loss on disposal of asset Commodity price call option expired out of the money Cooling tower claims recoveries 8 - (4,275) Approved emission performance credits - (36) Funds used in continuing operating activities before changes in working capital (6,659) (10,627) Change in non-cash working capital from continuing operations 14 (6,023) (6,374) Net cash used in operating activities from continuing operations (12,682) (17,001) Cash flows from financing activities: Repurchase of common shares for cancellation 7 (3,583) - Net proceeds from exercise of stock options Interest and bank charges 9 (107) (379) Net cash generated from (used in) financing activities from continuing operations (3,690) 273 Cash flows from investing activities: Proceeds on sale of operating segment - 116,644 Closing costs on sale of United States operating segment - (6,176) Property, plant and equipment additions 6 (23,460) (2,029) Purchase of short-term investment 5 (25,000) - Proceeds from withdrawal of short-term investment 5 25,000 - Reinvested interest income from short-term investment (1,083) - Proceeds on sale of asset, net of closing costs Proceeds from the cooling tower claims recoveries 8-4,275 Interest income 9 1, Change in non-cash working capital (7,551) Net cash generated from (used in) investing activities from continuing operations (22,493) 105,851 Increase (decrease) in cash and cash equivalents from continuing operations (38,865) 89,123 Cash and cash equivalents held at discontinued operation, beginning of period - 3,535 Net decrease in cash and cash equivalents from discontinued operation 4 - (3,535) Cash and cash equivalents, beginning of period 51,264 15,303 Cash and cash equivalents, end of period 12, ,426 The accompanying notes are an integral part of these condensed consolidated interim financial statements.

7 MAXIM POWER CORP. Notes to the Unaudited Condensed Consolidated Interim Financial Statements, Page 1 For the three and nine months ended September 30, 2018 and 2017 (Amounts in thousands of Canadian dollars except as otherwise noted) 1. Reporting entity Maxim Power Corp. is incorporated in the province of Alberta, Canada. Maxim Power Corp. and its subsidiaries (together "MAXIM" or the "Corporation") is an independent power producer, which acquires or develops, owns and operates power and power related projects in Alberta. The Corporation closed the sale of its United States operating segment on April 3, 2017 and has presented the result of this segment as discontinued operation (note 4). The Corporation s common shares trade on the Toronto Stock Exchange under the symbol "MXG". MAXIM s registered office is Suite 1210, Avenue S.W., Calgary, Alberta, Canada, T2P 2X6. 2. Basis of preparation and statement of compliance These unaudited condensed consolidated interim financial statements are prepared in accordance with International Accounting Standard ("IAS") 34 Interim Financial Reporting. The unaudited condensed consolidated interim financial statements do not include all the information required for annual financial statements. These unaudited condensed consolidated interim financial statements should be read in conjunction with the Corporation's December 31, 2017 annual audited financial statements, available at MAXIM's Board of Directors approved these unaudited condensed consolidated interim financial statements on November 8, Significant accounting policies Except as noted below, the significant accounting policies used in the preparation of these unaudited condensed consolidated interim financial statements have been applied consistently for all periods presented and are unchanged from the policies disclosed in the notes to the consolidated financial statements for the year ended December 31, On January 1, 2018, the Corporation adopted Financial Instruments ("IFRS 9") and Revenue from Contracts with Customers ("IFRS 15"), as well as the amendments to Investments in Associates and Joint Ventures ("IAS 28"), Transfers of Investment Property ("IAS 40"), Share-Based Payments ("IFRS 2") and Insurance Contracts ("IFRS 4"). With the exception of IFRS 9, the adoption of these new standards and amendments had no impact to the amounts recorded in the Corporation's consolidated financial statements as of January 1, 2018 or comparative periods. The effect of the changes from IFRS 9 were disclosed in the Corporation's condensed consolidated interim financial statements for the first quarter ended March 31, In addition, IFRS 15 did not impact amounts recorded, but did impact the Corporation's significant accounting policies disclosure which was disclosed in the Corporation's condensed consolidated interim financial statements for the second quarter ended June 30, The use of judgments and estimates in the preparation of these unaudited condensed consolidated interim financial statements has been applied consistently for all periods presented and are unchanged from the judgments and estimates disclosed in the notes to the consolidated financial statements for the year ended December 31, 2017, with the exception of the following.

8 MAXIM POWER CORP. Notes to the Unaudited Condensed Consolidated Interim Financial Statements, Page 2 For the three and nine months ended September 30, 2018 and 2017 (Amounts in thousands of Canadian dollars except as otherwise noted) 3. Significant accounting policies (continued) During the third quarter of 2018, the Corporation revised its business plan for the HR Milner generating facility ( Milner ). The existing facility is anticipated to be phased out during the latter stages of 2019, at which point it will be mothballed and a new natural gas-fired facility will be constructed adjacent to the existing facility (note 6). As a result, certain components of the existing facility will have a revised useful life of 5 to 25 years. Coal-fired components remain unchanged with useful lives ending at December 31, In addition, the Corporation revised its expectation of the timing of decommissioning Milner's natural gas-fired components to be consistent with the useful life of the new natural gas-fired facility. As a result, there was an increase in property, plant and equipment of $1,135, an increase to other assets related to the decommissioning reimbursement of $1,549 and an increase to provisions for decommissioning of $2,684. During the first quarter of 2018, the Corporation continued remediation of certain lands at the Milner site, and as a result management updated the cost estimate to decommission Milner. The cost estimates were updated to reflect current information. 4. Discontinued operation The following tables represent the discontinued net income and cash flows for the United States operating segment at September 30, 2017: Three months ended Nine months ended September 30, 2017 September 30, 2017 Revenue - 14,246 Expenses (income) (i) 2,156 (20,065) Operating income (loss) (2,156) 34,311 Finance income, net (ii) - (14,891) Income (loss) before income taxes (2,156) 49,202 Income tax expense (benefit) Current - 25 Deferred - (28) - (3) Net income (loss) from discontinued operation (2,156) 49,205 Attributable to: Non-controlling interest - 4 Shareholders (2,156) 49,201 (i) Includes a gain on disposal of the United States operating segment for $31,613 in the first nine months of (ii) Includes a realized gain on translation on disposal of discontinued operations for $15,349.

9 MAXIM POWER CORP. Notes to the Unaudited Condensed Consolidated Interim Financial Statements, Page 3 For the three and nine months ended September 30, 2018 and 2017 (Amounts in thousands of Canadian dollars except as otherwise noted) 4. Discontinued operation (continued) Nine months ended September 30, 2017 Cash flows from (used in) discontinued operation Net cash generated from operating activities 87 Net cash used in financing activities (842) Net cash used in investing activities (313) Cash component of net assets disposed (2,443) Unrealized foreign exchange loss on cash (24) Net cash flows for the period (3,535) 5. Short-term investment During the first quarter of 2018, the Corporation invested $25,000 into a certificate of deposit held with a Canadian financial institution. The deposit requires a ninety day notice for redemption to cash and cash equivalents. During the third quarter of 2018, $25,000 was withdrawn from short-term investments and transferred into a demand deposit bank account under cash and cash equivalents to fund the purchase of a natural gas-fired combustion turbine and certain other equipment (note 6). 6. Property, Plant and Equipment During the third quarter of 2018, MAXIM closed the purchase of a natural gas-fired combustion turbine generator and certain other equipment for $20,321. Additional capital spending on sustaining projects at Milner and other development projects totaled $3,139 in the first nine months of Share capital During 2018, the Corporation purchased and cancelled 1,476,716 common shares under the normal course issuer bid ("NCIB") program at a cost of $3,583. Common shares purchased were recognized as a $4,253 reduction to share capital equal to the average carrying value of common shares. The difference between the aggregate purchase price and the average carrying value of the common shares of $670 was recorded as an increase in retained earnings. Number of Shares $ Common Shares of MAXIM Common Shares, December 31, ,301, ,482 Share options exercised 322, Common Shares, December 31, ,623, ,471 Common Shares purchased and cancelled under NCIB (1,476,716) (4,253) Common Shares, September 30, ,147, ,218

10 MAXIM POWER CORP. Notes to the Unaudited Condensed Consolidated Interim Financial Statements, Page 4 For the three and nine months ended September 30, 2018 and 2017 (Amounts in thousands of Canadian dollars except as otherwise noted) 8. Other expense (income), net Three months ended September 30 Nine months ended September Cooling tower claims recoveries (4,275) Restructuring of Alberta operations ,390 Transition service income - (333) - (699) Loss on sale of asset (i) Other expense (income) (54) Total other expense (income), net 881 (269) 1,259 (3,638) (i) During the third quarter of 2018, the Corporation closed the sale of a subset of its renewable generation development project, classified as PP&E, for a cash consideration of $400, less closing costs of $36. As a result, the Corporation realized a pre-tax loss of $614. In addition to the cash consideration, the purchaser has agreed to pay MAXIM a contingent consideration if the purchaser executes a renewable power purchase arrangement or commences construction related to the renewable generation development project. The purchaser will also pay MAXIM further consideration upon the commencement of commercial operations (note 13b). 9. Finance income, net Three months ended September 30 Nine months ended September Interest expense and bank charges Accretion of provisions Foreign exchange loss (gain) (5) 191 Finance expense Interest income (i) (517) (394) (1,580) (688) Total finance income, net (358) (275) (1,361) (55) (i) Includes interest income on cash and cash equivalents, short-term investment and restricted cash. 10. Income taxes During the second quarter of 2018, the Corporation reversed a portion of a previously derecognized tax assets of $3,479. The Corporation rerecognized the assets as it is now considered probable that sufficient future taxable income will be available from the Corporation's continuing operations to utilize the underlying tax losses due to the resumption of economic operations at Milner. During the second quarter of 2018, the Corporation derecognized $3,368 of deferred tax liabilities related to timing differences generated from the recognition of capital expenditures for tax purposes, as the Corporation is now able to control the timing of the reversal of these differences.

11 MAXIM POWER CORP. Notes to the Unaudited Condensed Consolidated Interim Financial Statements, Page 5 For the three and nine months ended September 30, 2018 and 2017 (Amounts in thousands of Canadian dollars except as otherwise noted) 11. Earnings per share (a) Basic earnings per share The calculation of basic earnings per share for the three months ended September 30, 2018 was based on the net loss attributable to common shareholders and net loss attributable to common shareholders from continuing operations of $3,733 (September 30, 2017 $5,437 and $3,281, respectively) and weighted average number of common shares outstanding for the period of 53,300,709 (September 30, ,574,089). For the nine months ended September 30, 2018 basic earnings per share was based on the net loss attributable to common shareholders and net loss attributable to common shareholders from continuing operations of $4,456 (September 30, 2017 income of $30,930 and losses of $18,271, respectively) and weighted average number of common shares outstanding for the period of 54,080,371 (September 30, ,445,342). (b) Dilutive earnings per share For the nine months ended September 30, 2017 diluted earnings per share calculation, 74,309 shares were added to the average number of common shares outstanding during the period for the dilutive effects of exercisable stock options. For the three and nine months ended September 30, 2018, and three months ended September 30, 2017, no shares were added to the average number of common shares outstanding because they were antidilutive. 12. Commitments (a) Milner Power Limited Partnership ("MPLP") is responsible for the decommissioning and remediation of the power station lands at Milner and the present value of these amounts have been recorded in provisions. The Balancing Pool has agreed to reimburse MPLP for the first $15,000 in decommissioning expense. As at September 30, 2018, on a year-to-date basis, the Corporation has billed the Balancing Pool for $1,588, of which $1,527 has been collected for remediation of certain lands at Milner. As at September 30, 2018, on a life-to-date basis, the Corporation has billed the Balancing Pool for $3,932, of which $3,871 has been collected for remediation of certain lands at Milner. The present value of the residual balance of $6,552 has been recorded in other assets. Should there be a material breach of environmental laws by MPLP during the period of ownership, then MPLP is required to contribute fully to the incremental costs caused by such material breach. (b) The Corporation has entered into a natural gas transportation service agreement from November 1, 2020 to October 31, 2028 for the Deerland peaking station development project whereby it is committed to reimburse out-of-pocket costs of the counterparty for the construction of the project. The maximum authorization of expenditure is $1,570 and $15 has been incurred by the counterparty as at September 30, The Corporation has an additional commitment of $798 regarding the service portion of the contract.

12 MAXIM POWER CORP. Notes to the Unaudited Condensed Consolidated Interim Financial Statements, Page 6 For the three and nine months ended September 30, 2018 and 2017 (Amounts in thousands of Canadian dollars except as otherwise noted) 13. Contingencies (a) Contingent liabilities The Corporation operates in a regulatory and commercial environment that exposes it to regulatory, contractual and litigation risks. As a result, the Corporation is involved in certain disputes and legal proceedings, including litigation, arbitration, and regulatory investigations. Such cases are subject to many uncertainties, and the outcomes are often difficult to predict, including the impact on operations or on the financial statements, particularly in the earlier stages of a case. In certain circumstances, to avoid the expense and distraction of legal proceedings, the Corporation may, based on a cost-benefit analysis, enter into a settlement even though denying any wrongdoing. The Corporation makes provisions for cases brought against it when, in the opinion of management after seeking legal advice, it is probable that a liability exists, and the amount can be reliably estimated. The Corporation closed the sale of the France operating segment on December 2, Under the agreement, the Corporation continues to be subject to the claims received for 1,700 thousand in additional costs from suppliers in France. Costs in relation to these claims and potential claims are only recognized when they become probable and based on the information presently known, it is the view of the Corporation that these claims and potential claims are without merit. Further under the agreement, the Corporation is subject to performance criteria of certain generating units in the France operating segment until October 31, The Corporation is responsible to reimburse the buyer of the France operating segment for penalties incurred until that time up to a maximum of 1,500 thousand. Any amounts claimed by the buyer in relation to these two amounts will be reduced by any recoveries attained by the buyer from legal proceedings against third parties that were ongoing at the time of the sale and date of these Consolidated Financial Statements. The Corporation is further subject to tax indemnities until December 2, In addition, the Corporation is subject to customary closing indemnities until December 2, 2019 to a maximum claim of 3,500 thousand. The Corporation closed the sale of the United States operating segment on April 3, Under the sales agreement, the Corporation is subject to tax indemnities with an expiry date in accordance with all applicable statutes of limitations with respect to the matters covered thereby. During the first nine months of 2018, MAXIM settled US$177 thousand of indemnity claims relating to tax matters for a payment of US$115 thousand. Costs in relation to these claims and potential claims are only recognized when they become probable and based on the information presently known, it is the view of the Corporation that no liability currently exists. The actual outcome of these claims and potential claims, including the timing and amount of any cash outflow or the possibility of reimbursements, is not yet determinable.

13 MAXIM POWER CORP. Notes to the Unaudited Condensed Consolidated Interim Financial Statements, Page 7 For the three and nine months ended September 30, 2018 and 2017 (Amounts in thousands of Canadian dollars except as otherwise noted) 13. Contingencies (continued) (b) Contingent assets Through its Decision 790-D ("Decision"), the Alberta Utilities Commission ("AUC") asserted its position on several matters related to remedy under Module C of Milner Power Inc.'s complaint relating to the Alberta Electric System Operator ( AESO ) Line Loss Rule. The Decision confirms that the same method that was used to calculate 2017 prospective loss factor rates would be used for the retrospective period of January 1, 2006 December 31, A single settlement approach will be used whereby the AESO calculates all eleven years before cash is settled. The Decision further confirms that the settlement be effected by reissuing invoices to the original party and that a rider will be applied to transmission rates across the industry to collect any shortfall from the inability to collect from an original party. The Corporation estimates that overpayments of approximately $40,100 were made by Milner Power Inc. to the AESO for the period January 1, 2006 to December 31, 2016, based on calculations established by information currently available on final public record, before accounting for the time value of money. As at September 30, 2018, the precise amount and timing of compensation under Module C cannot be determined. The Corporation has closed the sale of a subset of its renewable generation development project. Under the sales agreement, the Corporation is entitled to additional compensation if the purchaser executes a renewable power purchase agreement or begins construction of the project. In addition, the Corporation is entitled to further compensation upon the date of commercial operation. This additional compensation, under both conditions, shall not exceed $3,535. As at September 30, 2018, the precise amount and timing of compensation under the sales agreement cannot be determined. 14. Change in non-cash working capital September 30, September 30, Operations Trade and other receivables (3,792) 617 Prepaid expenses and deposits (163) (13) Inventories - (9) Trade and other payables (2,068) (6,969) (6,023) (6,374) September 30, September 30, Investing Trade and other payables Restricted cash 40 (7,910) 106 (7,551)

14 MAXIM POWER CORP. Notes to the Unaudited Condensed Consolidated Interim Financial Statements, Page 8 For the three and nine months ended September 30, 2018 and 2017 (Amounts in thousands of Canadian dollars except as otherwise noted) 15. Segmented information MAXIM is an independent power producer engaged in the development, ownership and operation of power generation facilities and the sale of electricity. In 2018, the Corporation operated in one reportable segment with power generation facilities located in Canada. Results are reviewed regularly by the Corporation s interim CEO to make decisions about resources to be allocated to the segments and to assess their performance. The United States operating segment ceased to be a strategic segment in the second quarter of 2017, as a result of the sale of this business segment. The Corporation has modified the composition of the reportable segments. Information regarding results of each reportable segment is included below. Performance is measured on operating income or loss, as included in the internal management reports that are reviewed by the Corporation s Interim CEO. Income from operations is used to measure performance as management believes that such information is the most relevant in evaluating the results of the reportable segments. (a) Three months ended September 30, 2018 Milner and development projects Corporate amounts Total consolidated Revenues from external customers 7,880-7,880 Operating loss (2,933) (1,168) (4,101) September 30, 2017 Milner and development projects Corporate amounts Continuing operations Discontinued operation from United States Total consolidated Revenues from external customers Operating income (loss) (2,526) (1,101) (3,627) (2,156) (5,783) (b) Nine months ended September 30, 2018 Milner and development projects Corporate amounts Total consolidated Revenues from external customers 9,989-9,989 Operating loss (9,009) (3,679) (12,688) September 30, 2017 Milner and development projects Corporate amounts Continuing operations Discontinued operations from United States Total consolidated Revenues from external customers 2,024-2,024 14,246 16,270 Operating income (loss) (14,218) (4,869) (19,087) 34,311 15,224

15 MAXIM POWER CORP. Notes to the Unaudited Condensed Consolidated Interim Financial Statements, Page 9 For the three and nine months ended September 30, 2018 and 2017 (Amounts in thousands of Canadian dollars except as otherwise noted) 16. Financial instruments, financial risk management and fair value The fair value measurement of a financial instrument or derivative contract is included in one of three levels as follows: - Level I: unadjusted quoted prices in active markets for identical assets or liabilities - Level II: inputs other than quoted prices included within Level I that are observable for the asset or liability, either directly or indirectly - Level III: inputs for the asset or liability that are not based on observable market data (unobservable inputs) The Corporation s financial assets and financial liabilities that are not risk management contracts are all classified as Level I under the fair value hierarchy as they are based on unadjusted quoted prices in active markets for identical instruments. (a) Commodity risk management swaps and options The fair value of the commodity swaps are classified as Level II under the fair value hierarchy as the fair values are based on observable market data. The Corporation determined the fair value of the swaps by applying the market approach using market settled forward prices as reported by the Natural Gas Exchange for forward contracts of comparable term at the reporting date. For the nine months ended September 30, 2018, the unrealized gain on commodity price swaps was $nil (September 30, $58). For the nine months ended September 30, 2018, the realized gain on commodity risk management swaps and option was $nil (September 30, $1,295 gain on swap and $378 loss on option). At September 30, 2018, the Corporation had no outstanding commodity swaps or options. (b) Foreign exchange risk management swap and options The Corporation, in the discontinued United States operating segment, was exposed to foreign currency exchange risk from the divestment of the operating segment where proceeds are denominated in currencies other than the functional currency of the Corporation. The Corporation managed this exposure by entering into a foreign currency swap and purchasing put options, for a portion of the proceeds. The fair value of the foreign currency swap and put options are classified as Level II under the fair value hierarchy as the fair values are based on observable market data. For the nine months ended September 30, 2018, the Corporation, realized $nil (September 30, $421, recognized in discontinued operation, on the US$78,000 thousand swap to lock-in a portion of the sales proceeds of the United States operating segment). For the nine months ended September 30, 2018, the Corporation realized a net loss of $nil (September 30, $1,092 upon the expiry of two put options expiring March 24, 2017, consisting of the amortization of premiums paid of $1,378, partially offset by proceeds on exercise of $286. These amounts have been recognized in discontinued operation). At September 30, 2018, the Corporation had no outstanding foreign exchange risk management swaps and options.

16 MANAGEMENT S DISCUSSION AND ANALYSIS The following Management s Discussion and Analysis ("MD&A") is dated November 8, 2018 and should be read in conjunction with the unaudited condensed consolidated interim financial statements of Maxim Power Corp. ("MAXIM" or the "Corporation") for the three and nine months ended September 30, The MD&A should also be read in conjunction with the audited consolidated financial statements and MD&A for the year ended December 31, MAXIM prepares its unaudited condensed consolidated interim financial statements in accordance with International Accounting Standards ("IAS") 34 Interim Financial Reporting, under International Financial Reporting Standards ("IFRS"), as set out in Part 1 of the Handbook of the Canadian Institute of Chartered Accountants ("GAAP"). Capitalized and abbreviated terms that are used but not otherwise defined herein are defined in the Glossary of Terms. Throughout this MD&A, dollar amounts within tables are in thousands of Canadian dollars unless otherwise noted. TABLE OF CONTENTS FORWARD-LOOKING INFORMATION... 2 OVERALL PERFORMANCE... 3 RESULTS OF CONTINUING OPERATIONS... 4 DISCONTINUED OPERATION... 8 LIQUIDITY AND CAPITAL RESOURCES... 8 OUTLOOK ACQUISITION AND DEVELOPMENT INITIATIVES ENVIRONMENTAL AND CLIMATE CHANGE LEGISLATION SELECTED QUARTERLY FINANCIAL INFORMATION CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES NEW ACCOUNTING PRONOUNCEMENTS TRANSACTIONS WITH RELATED PARTIES CONTROLS AND PROCEDURES OTHER INFORMATION GLOSSARY OF TERMS... 18

17 FORWARD-LOOKING INFORMATION Certain information in this MD&A is forward-looking information ("FLI") and is subject to important risks and uncertainties. The results or events predicted in this information may differ from actual results or events. Factors which could cause actual results or events to differ materially from current expectations include the ability of the Corporation to implement its strategic initiatives, the availability and price of energy commodities, government and regulatory decisions, power plant availability, competitive factors in the power industry and prevailing economic conditions in the regions that the Corporation operates. Forward-looking statements are often, but not always, identified by the use of words such as "anticipate", "plan", "estimate", "expect", "may", "project", "predict", "potential", "could", "might", "should" and other similar expressions. The Corporation believes the expectations reflected in forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct. These forward-looking statements speak only to the date of this MD&A. The Corporation disclaims any intention or obligation to update or revise any forwardlooking statements, whether as a result of new information, future events or otherwise except as required pursuant to applicable securities laws. Readers are cautioned that management's expectations, estimates, projections and assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. With respect to forward-looking statements contained within this MD&A, MAXIM has made the following assumptions as at the date of this MD&A: MAXIM resumed the generation of electricity at HR Milner ("Milner") on June 13, Based on settled and forward power and gas prices, MAXIM anticipates generating electricity at the existing Milner facility until late MAXIM anticipates that it has approximately four months of coal inventory on hand, based on prior consumption. If Milner is unable to consume or resell its coal inventory, it could ultimately incur costs for disposal. Development projects, including Milner Gas Expansion ("MGE"), Deerland Peaking Station ("Deerland"), Milner Gas Repowering ("MGR") and Summit Coal ("SUMMIT") are based upon current estimates of capital cost, projected returns on investment, the duration of the regulatory approval process, and the ability to obtain the necessary financing. MAXIM is proceeding with the development of the MGE project. The first stage of the development is a 208 MW simple cycle gas turbine facility ( MGE1 ). Based on preliminary engineering, MAXIM is currently estimating total development costs to complete MGE1 in simple cycle mode of approximately $80.0 million, inclusive of the $20.3 million used to purchase equipment (refer to page 3), and that commercial operation date will occur late in The Milner site has access to existing assets, which results in a cost-effective solution for new development. Management forecasts that cash flows for operating, general and administrative expenses will be funded by its existing cash on hand. Based on preliminary engineering estimates, management forecasts that cash flows for MGE1 will be funded with existing cash on hand. Other development capital will be funded by future anticipated financing. MAXIM estimates total capital expenditures of approximately $36.7 million to be incurred in This respective estimate in the third quarter of 2018 has increased significantly from the estimate in the second quarter of 2018 primarily from the purchase of a natural gas-fired combustion turbine generator and certain other equipment and additional costs forecasted to commence construction of MGE1. In determining potential development sites, management estimates future capacity payments and power prices in Alberta. The actual future capacity and power prices in these areas may be different from expected. MAXIM anticipates compliance with all necessary provincial and federal regulations for environmental and climate change legislation. Changes to environmental legislation and operational issues may affect the ability of MAXIM to comply with regulations. MAXIM anticipates that it will maintain a working capital surplus over the next twelve months. Page 2

18 OVERALL PERFORMANCE Highlights and Notable Events During the third quarter, MAXIM announced that it has closed an agreement to purchase a General Electric Frame 7 F-Class combustion turbine generator ("CT") and certain equipment for $20.3 million for the MGE1 development project. This equipment was previously delivered new to the seller in 2012 and never installed. The purchase price will be funded from cash on hand. The decision to purchase this equipment follows from MAXIM's review and investigation of multiple alternatives in relation to the Milner site to maximize shareholder value. The CT is an efficient turbine generator with competitive variable operating costs. MAXIM anticipates that generation capacity at the Milner site from the CT will average 208 MW in simple cycle mode. Refer to page 12 for further discussion of MGE1. Based on preliminary engineering, the total estimated capital cost of the project including the above purchase is approximately $80.0 million, with commercial operation commencing late in MAXIM currently anticipates that operation of the existing Milner 150 MW duel fuel-fired (coal and natural gas) facility will be phased out during the latter stages of development of this new gas-fired generation capacity. Key Performance Indicators ("KPI") Three months ended Nine months ended September 30 September 30 ($000's, unless otherwise noted) Revenue Continuing operations 7,880-9,989 2,024 Discontinued operations ,246 Total 7,880-9,989 16,270 Net income (loss) attributable to shareholders Continuing operations (3,733) (3,281) (4,456) (18,271) Discontinued operations - (2,156) - 49,201 Total (3,733) (5,437) (4,456) 30,930 Basic and diluted net income (loss) per share attributable to shareholders ($ per share) Continuing operations (0.07) (0.06) (0.08) (0.34) Discontinued operations - (0.04) Total (0.07) (0.10) (0.08) 0.57 Total generation (MWh) 136, ,162 21,869 Average Alberta market power price ($ per MWh) (2) Average Milner realized power price ($ per MWh) (2) Total assets 160, , , ,236 (1) For comparative purposes, the Corporation continues to separately illustrate the impact of discontinued operation of the United States from continuing operations on its current KPI's. (2) Average Alberta market pool price and average Milner realized power price from June 13, 2018 to September 30, 2018 were $58.13 per MWh and $62.99 per MWh, respectively. Financial Results The financial results of the Canada segment are presented as continuing operations and the financial results of the U.S. operating segment are presented as discontinued operation to illustrate the impact to the Corporation of the sale of the foreign segment. Refer to Discontinued Operation section on page 8 for information on the financial results of discontinued operation. Page 3

19 Revenue and net loss attributable to shareholders from continuing operations increased in the third quarter of 2018 when compared to Despite the resumption of operations at Milner, net loss from continuing operations increased as the Corporation incurred additional depreciation on Milner components derecognized and a loss on the sale of a subset of the Corporation s renewable generation development project in This was partially offset by a lower operating loss at Milner, when excluding the impacts of depreciation, and lower personnel costs at the corporate head office. Revenue increased in the first nine months of 2018 when compared to 2017 due to the resumption of operations at Milner in June of 2018, in conjunction with higher Alberta power prices. In addition, net loss attributable to shareholders from continuing operations further decreased in the first nine months of 2018 when compared to The change in this financial measure was primarily due to operating cost savings from cost cutting initiatives and the temporary suspension of operations at Milner from July 2017 to June 2018, lower personnel costs at the corporate head office, lower restructuring costs, and the 2018 rerecognition and derecognition of future tax assets and liabilities, respectively. This was partially offset by higher operations and maintenance ( O&M ) expenses incurred from resuming operations at Milner, as well as realized gains on commodity risk management activities and final resolution of the cooling tower claims in RESULTS OF CONTINUING OPERATIONS Revenue Three months ended Nine months ended September 30 September 30 Segment ($000's) Revenue (1) 7,880-9,989 2,024 (1) All revenues from continuing operations are electricity sales at spot prices, including the impact of line loss credits. Revenue in the third quarter of 2018 increased from $nil in 2017 to $7.9 million in 2018, as a result of increased generation volumes, due to the resumption of operations at Milner, and significantly higher Alberta power prices. Revenue in the first nine months of 2018 increased $8.0 million, from $2.0 million in 2017 to $10.0 million in 2018, due to the same factors impacting the third quarter. Plant Operations Summary of plant operations expense by type: Three months ended September 30 ($000's) Fuel O&M Total Fuel O&M Total Total 1,970 6,236 8,206-1,527 1,527 Percent 24% 76% 100% 0% 100% 100% Nine months ended September 30 ($000's) Fuel O&M Total Fuel O&M Total Total 2,197 11,002 13,199 1,425 8,216 9,641 Percent 17% 83% 100% 15% 85% 100% Fuel and O&M expenses in the third quarter of 2018 increased $6.7 million, from $1.5 million in 2017 to $8.2 million in 2018, as Milner was operational in the third quarter of 2018 as compared to the same period in 2017 when operations were temporarily suspended. Fuel and O&M expenses in the first nine months of 2018 increased $3.6 million or 38%, from $9.6 million in 2017 to $13.2 in 2018, primarily due to the same factor impacting the third quarter and increased generation volumes, partially offset by cost savings from cost cutting initiatives and the temporary suspension of operations at Milner from July 2017 to June 2018 and lower perunit natural gas costs. Page 4

20 General and Administrative Expense Three months ended Nine months ended September 30 September 30 ($000's) Total general and administrative expense 901 1,429 3,082 3,958 General and administration expense in the third quarter of 2018 decreased $0.5 million or 36%, from $1.4 million in 2017 to $0.9 million in 2018, primarily due to lower personnel costs at the corporate office as a result of headcount reductions. General and administration expense in the first nine months of 2018 decreased $0.9 million or 23%, from $4.0 million in 2017 to $3.1 million in 2018, primarily due to lower personnel costs at the corporate office as a result of headcount reductions, partially offset by no allocations to the U.S. operating segment in the first quarter of 2018 as a result of the sale of this operating segment in the second quarter of Depreciation and Amortization Expense Three months ended Nine months ended September 30 September 30 ($000's) Total depreciation and amortization 1, ,137 3,781 Depreciation and amortization expense in the third quarter of 2018 increased $1.1 million, from $0.9 million in 2017 to $2.0 million in 2018, primarily due to additional depreciation recognized on components derecognized in 2018 and a higher asset base for Milner as a result of capital spending. Depreciation and amortization expense in the first nine months of 2018 increased $1.3 million or 34%, from $3.8 million in 2017 to $5.1 million in 2018, primarily due to the same factors impacting the third quarter. Other Expense (Income), Net ($000's) Other expense (income), net Three months ended Nine months ended September 30 September (269) 1,259 (3,638) Net other expense in the third quarter of 2018 increased from income of $0.3 million in 2017 to expense of $0.9 million in The increase is primarily due to a loss on sale of a subset of the Corporation's renewable generation development project and non-recurring transition services income received in Net other expense in the first nine months of 2018 increased from income of $3.6 million in 2017 to expense of $1.3 million in The increase is primarily due to cooling tower claim recoveries in 2017 and the same factors impacting the third quarter, partially offset by higher costs incurred to restructure the Corporation's Alberta operations in Page 5

21 Finance Income, Net Three months ended Nine months ended September 30 September 30 ($000's) Interest expense Accretion of provisions Foreign exchange loss (gain) (5) 191 Finance expense Interest income (517) (394) (1,580) (688) Total finance income, net (358) (275) (1,361) (55) Net finance income in the third quarter of 2018 was $0.4 million, which is comparable to the same period in Net finance income in the first nine months of 2018 increased from $0.1 million in 2017 to income of $1.4 million in The increase is primarily due to interest income earned on greater balances of cash and cash equivalents, short-term investment and restricted cash in 2018 as a result of the sale of the U.S. operating segment in the second quarter of In addition, $0.1 million of interest expense and bank charges were recognized in 2018 compared to $0.4 million in 2017, which was primarily due to standby charges on additional letters of credit outstanding. Income Tax Benefit ($000's) Current tax expense (benefit) Deferred tax benefit Total income tax benefit Three months ended Nine months ended September 30 September (10) (71) (24) (6,847) (842) (10) (71) (6,871) (761) Income tax benefit in the third quarter of 2018 is comparable to the same period in Income tax benefit in the first nine months of 2018 increased $6.1 million, from $0.8 million in 2017 to $6.9 million, as a result of rerecognizing tax assets in 2018 as it is now probable that sufficient future taxable income will be available to utilize underlying tax losses due to the resumption of operations at Milner. In addition, the Corporation derecognized its deferred tax liability in 2018, which was related to timing differences generated from the recognition of capital expenditures for tax purposes, as the Corporation is now able to control the timing of the reversal of these differences. Page 6

22 Financial Position The following highlights the changes in the Corporation's unaudited condensed consolidated interim Statement of Financial Position at September 30, 2018 as compared to December 31, As at ($000's) Assets Cash and cash equivalents and shortterm investment September 30, 2018 December 31, , ,402 (37,782) Increase (Decrease) Primary factors explaining change Capital additions for the MGE1 project and existing Milner facility, operating cash outflows and the purchase and cancellation of common shares Trade and other receivables Property, plant and equipment, net Net other assets 5,961 2,169 3,792 69,542 47,574 21,968 21,287 14,977 6,310 Increased as a result of resuming operations at Milner, partially offset by lower receivables outstanding for the remediation of certain lands at the Milner site Capital additions, change in estimated decommission costs and timing at Milner, partially offset by depreciation Increased due to the recognition of income tax assets and derecognition of liabilities Liabilities & Equity Trade and other payables 4,480 6,393 (1,913) Lower payables as a result of the final payment of the Federal Energy Regulatory Commission settlement, partially offset by higher payables at Milner due to restart of operations Provisions for decommissioning 15,041 11,055 3,986 Change in estimated decommission costs and timing at the Milner site, partially offset by continued remediation at the Milner site Equity 140, ,674 (7,785) Primarily due to a net loss for the period and the purchase and cancellation of common shares Page 7